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Series 7 practice questionhardOptions — Collar Maximum Profit Scenario

An investor buys 100 shares at $70, buys 1 put with a $65 strike at $3, and writes 1 call with a $80 strike at $4. At expiration, the stock is at $90. What is the investor's profit?

  1. A$1,000
  2. B$1,100✓ Correct answer
  3. C$800
  4. D$1,500
Explanation

Why B — $1,100

The stock is called away at $80: stock gain = $80 - $70 = $10. Net premium = $4 received - $3 paid = $1 credit. Total profit = $10 + $1 = $11 per share, or $1,100. Although the stock went to $90, the call caps the upside at $80. The net credit from the collar adds $1 per share to the profit.

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